The latest meeting of the Reserve Bank of Zimbabwe’s monetary policy resulted in a statement that showed some reaction to problems that have been biting at the heals of the RBZ lately. The statement sought to address the runaway parallel market rate by liberalising Bureau de changes to sell foreign currency to individuals at a maximum of US$50 per person per week. Another key highlight was the mention of the backlog in the foreign currency auction system in allotting US Dollars to bidders though no immediate solution was offered
The big move here is allowing Bureau de changes to sell foreign currency to individuals. We can surmise the words mean sell here as they were already authorised to buy.
Further liberalising the operations of bureaux de change to promote financial inclusion by allowing them to process small value foreign currency transactions of up to US$50 per person per week on the basis of individual identities, with charges and commissions levied by the bureaux de change not exceeding 10% per transaction.
While the limits set are very low they are certainly better than zero. US$50 per person per week would certainly go a long way. One of the things we have bemoaned about the auction system as a whole from the start is the lack of inclusivity. The results have shown with the parallel market offering a 100% premium on the official auction rate. The value of small transactions when combined can add up to quite a lot. The BDCs will be allowed to charge fees of up to 10% on these transactions which all things considered would make the effective exchange rate 94.50 (based on last week’s 85.91), still attractive when compared to 150 or 160. Of course, the question begs where the funds would come from to support these transactions given the massive backlog of US$175 million pending payment in the auction system. Looks like those special drawing rights will be put to use as was mentioned. The proof of the pudding is always in the eating.
The Committee also encouraged the Central bank to clear the aforementioned backlog within a month. We can only assume the source of funds to clear this backlog is the special drawing rights money. While the SDRs have come at an opportune moment and something had to be done for the foreign currency situation those questions remain as to whether this was the best thing to do. Supporting the foreign currency situation of the country is important but if the auction system is not self-sustaining it runs a realistic risk of becoming a problem child that continues to gobble currency. At the expense of other uses.
Another interesting measure the MPC placed in the statement was a demand management move to cap the bids by secondary users, consumables and services at US$100 000 while keeping limits for primary producers at US$500 000. Demand management measures like this have a not so successful history in the Zimbabwean economy. The rest of the statement was about maintaining matters like the lending rate and reserve money target. Also the MPC to time to congratulate themself on the relative though questionable stability.